Latest data on economy could help build a case for monetary easing or another rate cut when RBI reviews monetary policy

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The latest data on the economy should help further build a case for monetary easing or another rate cut when the RBI reviews its monetary policy in April.

Not so robust news has come in on the economic front. The Central Statistics Office’s (CSO) just-released second advance estimates of national income for 2018-19 show growth in gross value added (basically GDP, net of indirect taxes and subsidies) at 6.8 per cent. This is below the 7 per cent estimate that was made in the CSO’s earlier release on January 7. The 6.8 per cent figure comes on top of the 6.9 per cent figure for 2017-18, which makes it a second successive year of below-seven per cent growth. And if one compares it with the 7.9 per cent, 8 per cent and 7.2 per cent rates for the preceding three fiscals, it adds up to a not very pretty picture — of an economy that has recorded deceleration in the last two years of the Narendra Modi government, after having accelerated in the first three years.

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Equally worrying is the year-on-year growth in October-December 2018, which, at 6.3 per cent, is the lowest in six quarters. Taken together with a 1.8 per cent annual growth in production of eight core infrastructure industries in January — the slowest pace of growth in 19 months, it is not what any government would like to project ahead of elections. The higher than expected slowdown also comes at a time when global economic growth is moderating, amid fears over Brexit, and with domestic flows to the stock markets which were robust last year tapering off, leading to the Indian markets under performing vis a vis other major markets in Asia. Viewed against this backdrop, it now appears that the RBI under its new governor, Shaktikanta Das, made the right call last month when it changed its policy stance from calibrated tightening to neutral and cut the repo rate by 25 basis points.

The latest data on the economy should help further build a case for monetary easing or another rate cut when the RBI reviews its monetary policy in April. Contrary to the belief last year that the Narendra Modi-led government too would leave office showcasing accelerating economic growth, like the first NDA government under Atal Bihari Vajpayee, it now looks like there could be parallels with the previous UPA government in terms of deceleration in economic growth at the end. With polls around the corner, the serious work of repairing the economy may have to wait until a new government takes over. If that’s the case, regaining the growth momentum may take longer even if there is a near term boost because of poll spending.